Income Tax Appellate Tribunal - Delhi
Standard & Poor'S South Asia Services ... vs Dcit, New Delhi on 30 September, 2023
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH 'I', NEW DELHI
Before Dr. B. R. R. Kumar, Accountant Member
Sh. Yogesh Kumar US, Judicial Member
ITA No. 1137/Del/2015 : Asstt. Year: 2010-11
Standard & Poor's South Asia Services Vs. DCIT,
Pvt. Ltd., P-24, Green Park Extension, Circle-24(2),
New Delhi-110016 New Delhi
(APPELLANT) (RESPONDENT)
PAN No. AALCS0858G
Assessee by : Sh. Ved Jain, Adv.
Revenue by : Sh. Rajesh Kumar, CIT DR
Date of Hearing: 12.07.2023 Date of Pronouncement: 30.08.2023
ORDER
Per Dr. B. R. R. Kumar, Accountant Member:
The present a ppeal has been filed by the assesse e against the order dated 29.12.2012 passed by the AO u/s 143(3) r.w.s. 144C of the Income Tax Act, 1961.
2. The asse ssee has raised the following grounds of appe al:
"1.1 The learned AO/TPO / DRP have erred, in law and on facts and circumstances of the case, by not accepting the ec onomic analysis undertaken by the appellant in accordance with the provisions of the Act read with the Income-tax Rules, 1962 ("the Rules "), and modify ing the same for the determination of the Arm's Length Price (ALP") of the appellant's international transactions to hold that the same are not at arm's length.
1.2 The learned AO / TPO / DRP have erred, in law and on facts and circumstances of the case, by:2 ITA No. 1137/Del/2015
Standard & Poor's South Asia Services Pvt. Ltd a. Not ac cepting the use of multiple year data, as adopted by the appellant in TP documentation; and b. Determining the ar m's length margins / prices us ing data pertaining only to financial Year ("FY") 2009-10 which was not available to the appellant at the time of complying with the Indian TP documentation requirements 1.3 The learned AO/TPO/DRP have erred, in law and on facts and circumstances of the case, by rejec ting certain c omparable companies identified by the appellant by applying inappropriate comparability criteria such as:
a. Turnover less than INR 1 cr or e:
b. Different accounting year, c. Employ ee c ost lesser than 25 percent of total cost, and d. Diminishing revenues.
1.4 The learned TPO/ AO/ DRP have erred, in law and on facts and circumstances of the case, by wrongly rejecting c ertain compan ies from and adding certain companies to the final set of comparables for the impugned transactions on an ad-hoc basis, thereby resorting to cherr y picking of comparable to determin e ALP ther eof.
1.5 The learned TPO/ AO/ DRP have erred, in law and on facts and circumstances of th e case, by selec ting certain companies (which are earning supernormal profits) as comparable to the appellant to benchmark the impugned transactions.
16 The learned TPO/ AO have erred, in law and on facts and circumstances of the case, by not considering gains/losses arising out of foreign exchange fluctuations as operating item while computing operating margins of the appellant as well as comparable companies in respect of the impugned transactions.
1.7 The learned TPO/ AO/ DRP have erred by pass ing an assessment order which suffers from several computational errors in margin s and working capital 3 ITA No. 1137/Del/2015 Standard & Poor's South Asia Services Pvt. Ltd adjustment of the appellant as well as comparable companies in respect of the impugned transactions.
1.8 The learned TPO/ AO/ DRP have erred, in law and on facts and circumstances of the case, by not allowing suitable adjustments to account for differences in the risk profile of the appellant v is-à-vis the comparable companies in respect of the impugned transactions.
Ground No. 2: Corporate Tax Matters:
The Hon'ble DRP and the AO have erred, in law and on facts and circumstances of the case, in denying deduction for c laim of expense of INR 3,4 07,882 made by the appellant under section 40(a)(ia) of the Act by treating the same as prior period expense. Further, while doing so:-
2.1 The Hon'ble DRP/AO have erred, in law and on facts and circumstances of the case, in not allow ing the expens es under section 40(a)(ia) of the Act when the appellant had duly complied with the pr ovisions of Chapter XVII-B of the Act during Assessment Year ("AY") 2010-11.
2.2 The Hon'ble DRP/ AO have erred, in law and on facts and c ircumstances of the case, in adverting to irrelevant considerations, making incorrect presu mptions and observations while omitting to cons ider relevant facts, appellant's submissions and legal principles.
2.3 The Hon'ble DRP / AO have erred, in law and on facts, by neither referring to nor distinguishing the vital judgment of the Jurisdictional Delhi High Court relied upon by the appellant wherein the scope and extent of prior period expenses vis-à-v is the applicability of section 40(a)(i) have been explained and interpreted.
2.4 The learned AO has erred, in law and on facts, by levy ing interest under section 234A of the Act as the Return of In come was filed under section 139(1) of the Act and not under section 139(4) of the Act.4 ITA No. 1137/Del/2015
Standard & Poor's South Asia Services Pvt. Ltd Other Grounds:
3. The learned AO has erred in levy ing consequential inter est under sec tion 234B and 234D of the Act.
4. The learned AO has erred in initiating penalty proceedings under section 271(1)(c) of the Act."
3. All the grounds are interrelated pertaining to adjus tment of Arm's Length Price (ALP) and hence adjudicated together.
4. The asse ssee is a wholly owned subsidiary of The McGraw Hill Companies Inc., USA and e ngaged in engage d in providing rating support services and other support services to its assoc iated enterprises ("AE"). The assessee is a c aptive contract service provider engaged in providing the above mentioned services to its AEs, for which it is re munerated on cost-plus bas is where all costs incurre d by the Assessee are recovered alo ng with a markup from the AEs. Accordingly, it was submitted that the assessee operates in a risk-mitigated environment.
5. The TPO has rejected the set of comparables used in the TP s tudy by the assessee. The reasons for rejection are mentioned in detail by the TPO . The TPO has raised the serious objec tions to the filter or criter ia adopte d by the taxpayer in its TP s tudy for selection of comparables and use of three year data for computing the margin of the selected compar ables. Hence, the TPO rejected the T P study and conducted his own searc h for suitable comparables in this case. The assessee has state d that this approach of the TPO is arbitrary and TPO had no reason to reject its TP study.
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6. TP order considered under the Circular No. 12 of 2001 and Circular No. 14/2001 and Instruction No. 3 o f 2003 which reaffirm the legal po sition that, if conditions mentioned in clauses (a) to (d) of section 92C(3) are satisfied, the ALP deter mined by the tax payer can be rejected.
7. After go ing through the record, we hold that the TPO's actio n is corre ct and in accordance with the ratio of the s pecial bench of the ITAT in the case of M/s Az tech Software [294 ITR 125 (AT)] wherein it w as held that when tax authorities are of the o pinion that the ALP has not been correctly determined by the tax payer, they can substitute their own ALP on the basis of material or information furnished by the assesse e or collected by the revenue. Regarding the use of single year data, it is well settled law that single year data has to be considered unless the assessee demonstrates that prior year's da ta has had an influe nce on the setting of transfer price of international transaction e ither at the time of setting them or by way of adjusting them subse quent to entering into the international transaction to align them to the arm's le ngth price. The proviso can be invoked only if it is established that earlier year's circumstances do have a bearing on the performance of the year under audit. Reliance is being placed o n the order of the Co- ordinate Benc h of ITAT in the case of Schefenacker Motherson Ltd. vs. ITO 2009-TIOL-376-ITAT Delhi has upheld the use of single year da ta.
8. The TP adjustment has been made by the Revenue on two segments namely, Rating Support Services Segme nt (RSSS) and Other Support Services (OSS).
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9. Both the parties argued for and against the inclusion of the comparables. The ld. DR submitted his arguments in writing and the ld. AR also submitted the rejoinder which have been duly considered below.
10. Written Submissions of the ld. DR:
"Functions/role of the credit rating agencies /p rofile of the assessee company parent group As mentioned in the TPSR, the assessee is par t of the S & P group whic h is a prov ide r of financia l inte lligence and a leading source of credit ra ti ngs , indices, investment/financia l research, risk evaluation and data se rv ice s. Further S& P group also provides equity and inves tment resear ch as well as mutual fund info rmation and analysis services.
S&P gro up is one of the three leading cre dit rating agenc y in the world, the o the r being moody's investor services and fitch ratings . This group conducts sector/industries/market/economic research activities s pread o ver sever al sectors of the Economy. It covers the Financial products/institutions/Gove rnment agenc ies e tc. o r i n other words it can be said that it covers almost every financ ial products/ ins titutio n whethe r it is Go vernment o r private secto r.
The role of c redit rating agency has been discussed by the assessee company in its T PSR (para 2.04 page 6 onw ar ds) where in i t is specifically mentioned that bec ause of incre ase in the number a nd complexity of financial pro ducts the role in the func tion of the credit rating a gencies have increase manifo ld. Further, the role and the func tio n of the cre dit ra ting agencies mentione d in the "industry over view " given in T PSR has also been show n as very comple x and important in the sense that the cre dit age ncies now rate almost all the financial products which includes securities , de rivatives , other 7 ITA No. 1137/Del/2015 Standard & Poor's South Asia Services Pvt. Ltd inves tment products, financia l cre dibility of institutio ns which issues financ ial produc ts etc. not only this the credit r ating also pro vide credit r ating to the various Governments municipal bodies , banks etc and these ratings are widely used as benchmark by the public for inves tments . Thus in totality, it ca n be said that the role o f cre dit ratings agencies is very comple x and re quires very high end expertise a nd specialization in many fields fo r doing s uch services. Credit rating age ncies act like a gatekeeper for the global capita l markets beca use many investo rs only deal with financial instruments that are rated by the CRAS . In addition, there are inst itutional inves tors suc h as pension funds who are not permitted by law to inves t in financial pro ducts be low a certain rating or without a rating. This shows the undeniable bene fit resulting from the exis tence o f the C RAS. The rating agencies provide information and valuations on which all market participants can agree, which are standa rdised and inte rnatio na lly recognise d. Witho ut this authority, a globally networ ked and active financial system such as we are experienc ing wo uld be hardly imaginable .
Functional pr ofile of the assessee co mpany The assessee company SPSA is a wholly owned subsidiary of Mcgraw Hill USA and basically looking afte r the pa rent companies wo rk in India and South East Asia. In the TPSR, the Asses see company is shown to have bee n pe rfo rming the following functio ns.
With regard to Provisions of r ating support services As mentioned in the TPSR (para 4.02, page 13 of pape r book , volume-1) fo llo wing functions are pe rformed by assess ee company.
4.02.2. Functions perform ed 8 ITA No. 1137/Del/2015 Standard & Poor's South Asia Services Pvt. Ltd Based o n o ur dis cussions with S PSA, summar ised below are the func tio ns perfo rmed by SPSA and its AEs in re lation to the transac tio n pertaining to provision of rating suppo rt services.
Marketing/Business Development SPSA undertakes marketing/ business deve lopment activities like identifying po tential customers in India.
Conceptualiz ation of serv ices The AES of SPSA are primarily responsible fo r conceptualisation o f services and determination of the exact scope of work to be perfo rmed by SPSA.
Data Co llection SPSA gathers data from clients/ ve ndors in India. Further, the AEs also send data to SPSA fo r analysis. The AEs are also engaged in data collec tio n.
Data analysis SPSA ana lyses the data co llate d from various sources and fo rw ar ds the analyse d data to its/AEs fo r further review . The data analysed by SPSA forms pa rt o f the repo rt issued by AEs to its cus tomers.
Quality contro l SPSA is res ponsible for the qua lity o f the wo rk undertaken by it and ensures that the work performed complied w ith the quality s tandards set by the Group. The AEs are responsible for quality co ntrol and evolve the uniform standar ds.
Human resource s SPSA unde rtakes the recruitment/hiring process and is responsible for day-to-day supervisio n and control o f the employees. SPSA is also respo nsible for training of emplo yees.9 ITA No. 1137/Del/2015
Standard & Poor's South Asia Services Pvt. Ltd From the above , it is clear that the assessee company is taking care of the entire marketing/business develo pment wo rk of its parent company in India and South East Asia. It is responsible for identifying and meetings potential customers of its parent company/ group i.e. S& P Group. The assessee company is respo nsible for collecting data from clients/vendors and a lso does data validation and its analysis not only for the da ta collected by itse lf but even the AES of the assessee company also send the data to the assessee company for its analysis. The importance of the wo rk of the assessee company is cle arly seen from the fact that the data analyzed a nd researched by the assessee company fo rms part of t he repo rt/ ratings issue d by the AES to the ir customers.
The major role/functio n of any company involved in giving ratings/pro viding consultancy is collec tion of the data and its analys is/marke t research and the credit worthiness o f any financ ial products/ ins titutio ns is dependent upon the various factors and the prime most ingredient o f all such service s is co llec tion of data and its analysis. The assessee company is a feeder agency for its AEs/pa rent compa ny because its pro vides the analyzed data not only collec ted by itself but a lso the analy zed data sent by them.
The high end functions perfo rmed by the assessee co mpany is clear from the employe e profile as mentioned in para 2.03 for the pa per book. The par a 2.03 clearly mentions that the assessee company employs 26 persons comprising of data analysts, economis ts, softw are e ngineer s etc. The high e nd nature of employment to highly skilled emplo yees is also clear fr om the fact that out of total expenses o f aro und 15 crores, assessee incurs expenses of assesse 9.5 c rores o n " personnel e xpe nses o nly " whic h is more than 65% o f the to tal expenditure. The pe rsonnel expenses are also more than 55% of the total service s income earned by the assess ee company.10 ITA No. 1137/Del/2015
Standard & Poor's South Asia Services Pvt. Ltd Though the as ses see company says in its TPSR that it provides ratings suppor t se rvices to its A Es but from the func tion performed by the asses see company and its profile mentio ned in the we bsite, it is clear that fo r a ll practic al purpose, the assessee company is the entity whic h is re presenting its AE/S &P group in I ndia and South East Asia and they a re responsible fo r providing fo r all functional suppo rt/services/ for the local custo mers right from the identification of the c ustomer, meeting the custo mer, understanding their nee ds and re quirements, collection of data from various agencies/sources , analys is of data etc. Though the assessee company says that it forw ards the analysed data but fo r all practica l pur pose s, the SPSA is the entity which i s doing all the work/analays is/rese arch re lating to awarding c redit ratings to the customers/institutions. Fur ther even though to the final invoices/ ratings may be issued by its pare nt company/AE but the facts remains that the assesssee company/SPSA is the age ncy w hich is responsible fo r selling almost complete products/services to the local cus tomers in India, Asia and only financ ial invoices are issue d by the pare nt company.
Compar ables The assessee has challenge d the inclusion of fo llowing compara bles With regard to Pro visions of rating support ser vices. Reasons mentioned by a sse ssee for exclusion of comparable are briefly sta ted as under:
Na m e of the R e a s on fo r R e a s on s f o r ch a ll e n gi ng i n cl u si on c omp a rabl e E xc l us i on 1 . En gi n e e r ' s Ind i a F un ct i on a l l y 1 . Th e c o m pa n i es a r e en ga g ed in h ig h Lt d . di s si mi la r end a nd fu ll - fl edg e d En gi n e er in g a n d r ela t ed t ech n i ca l se rv i c e s .
2 . I t ' s a G ov t . U n d e rta k i ng a n d m o st l y ma n a g in g c ont r a c t s p r o vid ed b y G o vt .11 ITA No. 1137/Del/2015
Standard & Poor's South Asia Services Pvt. Ltd 3 . S ig n ifi ca n t R & D ex p end it u r e 2 . R it e s lim i t ed F un ct i on a l l y 1 . M u lt i d i s cip li na r y o rga n i z a ti on i n t h e di s si mi la r fi el d of t ra n sp o rt a ti on , i n f ra st ru c t u r e et c. and r en d e rs va s t range of eng in e e r i ng c on sul t a nc y s e r vi c es .
2 . I t ' s a G ov t . U n d e rta k i ng a n d m o st l y ma n a g in g c ont r a c t s p r o vid ed b y G o vt .
3 . K it c o Li mit ed F un ct i on a l l y 1. P r em i e r en gi n e e ri ng , ma n a g em en t di s si mi la r in p r oj e ct c on su l t a n c y fi rm .
2 . I t ' s a 1 0 0 % G ov t. Un d e rt a k i ng a n d mo st l y m a n a g in g c o nt r a ct s p r o vid ed by G ov t .
4. Gl ob a l F un ct i on a l l y 1. It is in p r o cu r em en t a d vis o r y pr o cu r em ent di s si mi la r s e rvi c e s and n ot pr ov i din g sup p o r t c ons u lt an t l i mi t e d s e rvi c e s 2 . P r o v id in g c on su lt a n c y s e r vi c es
5. IB I C h em at u r e F un ct i on a l l y 1 . I t i s in th e s e ct o r o f p r ov id in g h igh Li m i t ed di s si mi la r end eng in e e rin g co ns u lt a nc y a nd ot h e r eng in e e r i ng s e r vi c e s 2 . Em pl o y e es hi gh l y t ra i n ed t e ch n ic al s ta f f 3. S ig ni fi c a nt R &D e xp en di tu r e
6. Mah in dr a F un ct i on a l l y 1. Eng a g e d in pr ov i s ion of c ons u lt in g di s si mi la r in f ra st ru c tu r e c on s u lt in g s e r vi c es En gi n e e r s L td . 2. It r e c og ni s es i ts r ev enu e on pe r cen t a g e c om p l et i on m et h od 3 . A b s en c e o f s eg m ent a l i nf o r ma t i on
7. TCE C on su lt in g F un ct i on a l l y 1 . Eng a g ed in pr o vi si on of h ig h en d En gi n e e r s L td . di s si mi la r eng in e e r i ng c on s u l t in g s e rv i ce s and pr oj e c t en gi n e e rin g
2. It r e c og ni s es i ts r ev enu e on pe r cen t a g e c om p l et i on m et h od 3 . A b s en c e o f s eg m ent a l i nf o r ma t i on
8. TS R D a ra sh a w F un ct i on a l l y 1. Eng a g ed in p r ov is i o n of sh a r e Lt d . di s si mi la r r egi st r y , fun d m a n a g e m en t i n p a y r ol l pr o c e ss in g s e r vi c es 12 ITA No. 1137/Del/2015 Standard & Poor's South Asia Services Pvt. Ltd
9. Qui p p o V alu e r s F un ct i on a l l y 1 . En ga g ed in sa l e o f c on st ru ct i on a n d an d Au cti on e e r s di s si mi la r ea rt h m o vin g equ i p m en t s Pv t . L td . 2 . En ga g e d i n p r o vi d in g a s set From the per usal of the abo ve, it is see n that the assessee has challenged the above comparables mainly on 3-4 gro unds which are summarize d belo w :
1. The companies are engage d in high e nd Engineer ing and re la ted technica l/consultancy services .
2. Companies are Govt. Undertakings and mostly managing co ntracts provide d by Go vt.
3. Si gnificant R & D e xpenditure
4. I t recognises its revenue o n perc entage completion method As the assessee re asons for exclusion are common, ac cordingly, fo r the sake of co nve nie nce, departments comments are provided for the group companies.
(A). For Enginee r India Ltd., Rites limited, and Kitco Limited, IBI Chemature, Mahindra consulting, T C E Consulting etc. :-Reasons tha t Companies are involve d in high end technic al co nsultancy services and The assessee has alleged that most these companies are engaged in high end tec hnical consultancy se rvices and they are functionally diss imilar. Howev er these alle gations are complete ly wro ng and incor rect as mentioned in the hearings and again for r eady re ference are detailed belo w
(i) The assessee company employs more qualified professional than these companies as seen from its profile mentio ned in the TPSR at par a 2.03/page 6. The high end functions per formed by the assessee company is clea r from the employee profile as mentione d in para 2.03 for the pape r book. The para 2.03 clearly mentions that the 13 ITA No. 1137/Del/2015 Standard & Poor's South Asia Services Pvt. Ltd assessee company employs 26 persons comprising of data analysts, economists , so ftware e ngineers etc. T he high end nature of employment to hi ghly skilled emplo yees is also cle ar from the fac t that out o f to ta l expenses o f aro und 15 c rores , assessee incurs expenses o f assesse 9.5 cro res on "perso nnel e xpe nses only" which is more than 65% of the total expenditure. The personnel expenses are also more than 55% of the total services income earned by the assessee company.
2. Further, functionally a lso, the assessee company is per forming more complex and research orie nted and a nalytical w ork than what the other comprables a re do ing. The assessee company wor k profile is consis ting of giving cre dit ratings to various financ ial products/ ins titutio ns which many times consist of even Govt. agenc ies also . The work performed by credit r ating age ncies re quires highly technical, and specialize d kno wledge and advanced analytic al skills in the diverse fields of economics, financial intelligence , inves tment resea rch, industry a nd so ftware which even the comparable companies does not possess/are not doing. Accordingly it is humbly s ubmitted tha t the wo rk pe rformed by the assessee company is far more complex, te chnical and high end than what other comparable companies are doing.
(B) Reasons th at compara ble Compan ies are Government comp anies
1. The assessee has mentioned that M/s EIL/ R ites Ltd./ K itco Ltd. are Gov t. under takings and the canno t be taken as comparable . However, it is humbly submitted that the comparability of a company as per TP provisio ns is de pende nt upon the FAR analysis and not on the ow ners hip of the company. Further, it is a established fact the Govt. companies have more lia bilitie s/over heads and the compliance cost to all the laws, rule s and regulatio ns of the Govt. is more 14 ITA No. 1137/Del/2015 Standard & Poor's South Asia Services Pvt. Ltd stringent in Gov t. tha n the Pvt. companies. It is also e stablis hed fact that beca use of se vera l fa ctors like e xcess employees , bette r work ing conditio ns/pay pr ofile of all employees at all leve ls, hierarchical working, slow decision making etc. the Govt. companies profitability is less as compare d to the Pvt. com panies So the assessee's implie d contention that public sector companies sho ws more profits than the Pvt. companies is completely devoid of facts and requires to be summarily rejecte d.
2. It is also not out o f place to mentio n that i n se veral cases , the Hon'ble Courts has held tha t one canno t rejec t the company only because the re Go vt. company a nd also size o f the company is some immaterial. Eve n this is held in the case laws c ited by the assessee company only , which for rea dy re fere nce are mentioned belo w:-
a) In the case o f BG Exploratio n & Production India Ltd, Vs . JCIT , International Ta xation, Dehr adun in ITA No. 1170/ Del/ 2015, and ITA No. 1581/De l/2015, the Honb'le IT AT has held that the Government companies s hould not be rejected as the comparable only because they are Gove rnment companies. Be ing very pe rtinent, the re leva nt extract of the Hon' ble ITAT orde r is r eproduced be low:
ii) Glo ba l procure ment consultants Ltd, Ld. T rans fer Pricing Officer has included this comparable and according to him this company acts as the clients' representative in tak ing on the total responsibility o f procurement by providing a comprehensive range o f procurement related adviso ry service s and a llied activities fo r pro jects in India and abro ad. The main functions of the company are preparing and revie wing technical specifications, estimation of costs, selection o f vendo rs, ins pection and expediti ng, quality control and time management. The Ld. author ized r epresentative has conteste d that this Company is e ngage d in business of shipping logistics , payment and accounting, know-how transfe r (training) and bid suppo rt 15 ITA No. 1137/Del/2015 Standard & Poor's South Asia Services Pvt. Ltd services w hic h are not similar to ser vices pro vided by the Assessee .
It also renders financial a dvisory services. It was further contes ted that it has abnor mal and vo latile m argins. An inte resting reason was also given that the company is a government com pany and more than 25% subscribed capital is he ld by one of the banks. Reliance i n this rega rd is made to the recent decision of Mumbai Benc h of Tribunal in the case of She ll India Markets Pvt. Ltd. vs. ACIT (ITA No. 193/Mum/2013) . w here in, the Hon'ble Tribunal dire cted to exclude company owned by Government of India os a valid comparable to the taxpaye r. The Assessee has submitted the balance sheet o f the com pany w hich is placed at page No . 29 to 73 of the pape r book. Accor ding to the revenue model of the company, it is providing serv ices of procurement a dvisory se rvices and bac k-office suppo rt to the regional procurement officers o f the World Bank revie wing the ir technical specification of the goo ds planned to be procured. The major earning of the company is fro m consultancy services in these areas o nly. On perusing the functional profile of this comparable company . We are of the view that functions perfo rmed by this comparable company are comparable with the func tio ns per form ed by the Assessee. Hence, we reject the ar gument of the Ld. Authorised Representative of the functional dissimilarity of this compa rable. Furthermore , regar ding the argument of the Assessee that it is a gover nment company, therefore it should be excluded as a com parable. Decisio n of Coordinate bench cited before us in Shell India Markets Pvt. Ltd. vs. ACIT (ITA No. 193/Mum/2013) is cons ide red whe re the go vernment compa nies are excluded as a comparable not for the reasons only that the y are go vernment owned companies but because of their functional dissimilarity. We reject the argument o f the Ld. Authorised Repr esentative. Firstly for the reason that it is not a go vernment company as only the specified percentage of the shareho lding is held by EX IM bank and therefore only the provisio ns with r espect to the appointment of the auditors a re 16 ITA No. 1137/Del/2015 Standard & Poor's South Asia Services Pvt. Ltd regulate d a nd secondly it does no t have any impact o n the bus iness model of the company. In any way the government co mpanies, w hic h are mostly public sector unde rta kings also o perate with similar func tio ns, risks and assets emplo yed, the refo re it cannot be said that merely a company is a gove rnment company; it s hould be excluded from comparability ana lysis. Many times Government companies are bette r business propositions/ models then pr ivate e ntrepreneurs, a nd are good compa ra bles and such instances of gove rnm ent companies are innumerable . In view of this we are in agre ement with the observ ation o f the Ld. T ransfer Pricing O fficer as w ell as the Ld. Dis pute Resolution Panel that this comparable is a go od compara ble for the compa rability ana lysis in the case o f the company.
3) Further the assessee has quo te d the or der of the Hon'ble De lhi High Court in the case of PCIT-4 versus International SOS Services India P. Ltd. in I TA No. 454/2016 in its favour. Ho wever, from the perus al o f the order it is seen that the Hon' ble Delhi High Cour t has clearly mentioned tha t whe ther a 100% Gove rnment owned company can be taken as comparable or not de pend on facts and circums tances of each case. Being ver y pertinent, the re levant extract o f the Ho n'ble Delhi High Court order is reproduced below (page 357-359 of paper book o f case la ws compilation):
12. Whe ther tak ing up a 100% government owne d company as a comparable would be justifie d or no t would depe nd on the facts and circums tances of the case . The basic rule as contained in Rule 10B of the Income Tax R ules would apply. In the facts of the present case , howeve r, the Court finds that the view taken by the ITAT does not give rise to any substantia l question of low .
Thus the a bove or der of the Hon' ble Delhi High Court lays down the law that whe the r the Go vernment company c an be taken as a 17 ITA No. 1137/Del/2015 Standard & Poor's South Asia Services Pvt. Ltd comparable depends on fact of each case and there was no blanke t justific ation/ law has been rolled out by the Hon' ble De lhi High Court.
(C) Contradictor y stand by the assessee:- it is very surpris ing that the as seesee is taking a contradicto ry stand in the case tha t on one hand the assessee is disputing the inc lus ion o f some of the comparables like EIL, Apitco , R ites Ltd. on the ground that these companies a re Go vt. companies but on the other hand the assessee himself has taken two Govt. co mpanies i.e . EDCIL and Indian Tourism Development Co rpo ration Ltd. as comparable for provision of suppo rt se rv ices which are Govt. companies only. Thus it appears that the fundame nta l problem the assessee has with some of the Govt. companies selected by the TPO/AO, not because they are Govt. companies but the pro blem arises be cause o f their high margins . B ut now as the law is settled that a co mpany/ comparables canno t be rejected only because of la w/hi gh margins therefore it appears that the assessee is contesting these companies on the ground of its owners hip with the Govt. but in reality the main ground of oppo sing these compa nies is comparables is related to margins. Also the various cour ts have held that a person cannot be allo wed to take two different/conflic ting stand on similar ground in the same case. Thus , the assessee contentio n is with regard to tak ing Go vt. companies as comparables is w ithout any basis and requires to be re jected.
Some other conte ntio ns raised by assessee are also dis cussed as under:
1. For EIL:- the assessee has mentioned that this co mpany carries out R& D activ ities howe ver as mentio ned by the TPO/A O, this company does minimal R& D activ ities which is only 0.53% of its turnover.
2. For Mahindra consulting Engineers Ltd and TCE Co nsulting Engineers Ltd.:- the assessee has taken the ground that these 18 ITA No. 1137/Del/2015 Standard & Poor's South Asia Services Pvt. Ltd companies recognizes the ir re ve nue on pe rcentage completion method. This argument of the assessee company for Mahindra consulting Engineers Ltd w as rejected by the Hon'ble ITAT itself in the c ase of Terex India Pvt. L td. vs. DCIT 25(1) (ITA No .
4791/del/ 2015) ( page no. 367- 402 of paper book of case law compila tion) Delhi ITAT for A.Y. 2010-11 in para 33 of its or der. This case has been c ited by the assessee only and again reflects the contr adicto ry stand o f the assessee company.
With regard to Provision of supp ort servic es As mentio ned in para 4.0.3, page 17 of paper book , volume-1, the assessee company per forms the fo llowing func tio ns.
4.03. Provis ion o f support service s 4.03.1. Nature and terms of the internat ional transaction identified SPSA has e nte red into Support Service A greement ("Agreement") with McGraw-Hill USA for the provision of suppor t service s to its AES.
SPSA prov ides a range o f support service s to its AES . Summarize d below is a br ief descriptio ns of various services pro vided by SPSA to its AES.
SPSA writes bus iness articles on India a nd South-East Asia which are publis hed in the Busines s Week magazine . The articles w ritten by SPSA w ill be e dited by the AES and then published.
Corporate security group staff 19 ITA No. 1137/Del/2015 Standard & Poor's South Asia Services Pvt. Ltd SPSA provides and manages the security services fo r Mc-Graw Hill group company personne l in India and various Mc Graw-Hill group offices in India.
Information tech nology ("IT") services SPSA pro vides IT suppo rt and assistance to its AES. IT suppor t services involve bug fixing, e rror verification, troubleshoo ting, assis tance in update and new re lease implementations , enhancements o f products e tc.
Glob al procurement AES of SPSA procure v ar ious goo ds and services fro m independent manufactures/serv ice pro viders in India. SPSA acts as a liaison between the A ES and independent party.
Marketing SPSA markets the various se rvices offered by S&P group in India. The services mark eted include both rating and non-r ating offerings of S& P group.
From the perus al of the abo ve, it is seen that the ass essee company writes bus iness articles on financial markets/ products/various industries etc . in India and South East Asia. It is obvious that these articles are writte n after doing lo t o f marke t research and analysis o f the Data/factor w hich impact the financial sec tor/products. These articles are high end intellectual which duly publishe d in the Busines s magazines publishe d the S&P Group and it also acts as the basis for aw arding credit ratings by the S& P group companies examines the fina ncial repo rt.
The assessee company also provides IT services and assistance to its AES whic h is fro m very basic to advance use of technology like 20 ITA No. 1137/Del/2015 Standard & Poor's South Asia Services Pvt. Ltd implementing sy stems for the Group companies to e nhancement of softw are pro ducts, its trial etc. As the work o f c redit agenc ies invo lve handling and ana lysis of huge volumino us data and research whic h requires advance computing systems, accordingly pro vis ion of IT services beco mes very important functio n in the fie ld in which assessee company is ope rating.
Also the assessee company is responsible for assisting in procuring various goods and services from independent manufac ture r/service provide r in India for its AEs it also acts as a liaso n be tween AES and the independent parties. In fact the assessee company appears to be acting as globa l pr ocurement hub/agencies for the e ntire S& P group.
One of the majo r works perfo rmed by the assesse e company is marketing o f the various services/products offere d by S&P group in India which inc ludes both r ating a nd non rating offerings of S&P group. So even for e arning re ve nue fo r the gro up companies , assessee company has huge importa nce.
Thus from the above it can be safely inferred that the Assessee company/SPSA is not prov iding routine support s ervice s but the services it is providing comprises of the intellectual services in the form of contributing busi ness articles after do ing research/ analys is and also pro viding IT services which have huge implicatio ns fo r the S&P gro up/AEs be cause the functio ns of group de pe nds on use o f advance compute r systems/applicatio ns/products. The assessee company is also contributing a lot in the re venues co llecte d by the group from India and So uth Asia because it is responsible for marketing all the pro duc ts/ser vices offe red by the S&P group. No t only this the othe r companies o f S&P group are also depende nt on the assessee com pany for glo bal procurement from India. Thus in a nuts hell it can be said that the assessee company is providing ve ry 21 ITA No. 1137/Del/2015 Standard & Poor's South Asia Services Pvt. Ltd important/adva nce d/intellectually stimulating services which by no stretch o f imagina tion ca n be termed ro utine support services.
Compar ables
1. Globa l procu rement consultant lim ited: The assessee has opposed this com pany on the ground that it is engaged in providing procurement advis ory se rvices and also received som e income from commission. Howe ver, the profile of the assessee co mpany shows suppo rt se rv ices are almost similar to this company, as mentioned in the TPS R asses see company is respo nsible for assisting in procuring various goods and services from independent manufac ture r/service provide r in India for its AEs it also acts as a liaso n be tween AES and the independent parties. In fact the assessee company appears to be acting as glo bal procurement hub/agencies fo r the entire S&P group. Thus functio na lly both the companies are quite similar.
2. Ap itc o: The assessee has requested for e xclusio n o f this company on the gro und that it is functiona lly diss imilar however from the comparison of the function profile it is seen that both the companies are pro viding sim ila r services. As seen from the directors repor t place d at page 5 of the comparable s paper book, M/s Apitco recor ds substantial incom e from the services sector whic h include project related serv ices , tourism and research studies, asset reconstructio n and management service s, energy rela ted ser vice s etc. Thus M/s Apitco is mainly in the se rv ice sector and as the assess ee company is also providing services to its AEs in the fields of IT. intellectual inputs in the fo rm of contributing articles , marketing services, procurement services etc., thus there is func tio nal similar ity in assessee company a nd M/s A pitco. Further it appears that the assesse is prov iding more high end technical suppo rt services (as mentioned above) in comparison to M/s Apitco. Thus functionally the assessee company and Apitco are similar.
22 ITA No. 1137/Del/2015Standard & Poor's South Asia Services Pvt. Ltd
3. Quippo Valuer s and Auctioneers Pvt. Ltd.: this company also is functio nally simila r (as mentio ned in page 82 & 83/ directo rs repo rt of pape r book of compara bles companies) to the asse ssee company as it is providing services in the field of asset management, disposal services through auctio n, negotiated sales etc. Further this company is also in the field of pro viding valuation services for industrial assets . Thus the basic/ unde rlying functions o f both the assessee company as well as the Quippo V aluers and Auctione ers Pvt. Ltd. is same.
4. TSR D arashaw Ltd:- from the directors repo rt place d at page 106 & 107 o f the paper book of the comparable companies it is seen that the company major income is only from the s ervice s Le. 20 crores out of 21 crores is the assessee income from service charge. Also this compa ny is providing software services to various clients/businesses in the fie ld o f records management. share registry and transfe r services, de pository service s fund management, pay role se rv ices etc . Thus functio nally both the assesee c ompany as well as TSR Daras haw Ltd. are working in the support services sector only and more or less functio nal similar . The assesse has also taken the ground this company is earning super no rmal profits howeve r as mentioned above now it is a settle d legal position that compa nies canno t be inc lude d or excluded base d on the ir profit margins.
(D) Misplaced Reliance on var ious case laws by assessee comp any:
The assessee has also placed reliance on following case laws in suppo rt of exc lusion of various comparables. T he facts of the case cited by the as sessee are totally different and the functional profile of all the companies cove red in the above cited c as es are totally different from the functio nal pro file of the asses see company. Also it is humbly submitted that the various companies w hich were not 23 ITA No. 1137/Del/2015 Standard & Poor's South Asia Services Pvt. Ltd found to be functionally comparable were with respect to the companies covered in those cases meaning the reby that functiona lly the compara ble companies were fo und dissimilar to the companies covered in those cases, accordingly as the function profile of the assesee company has already been proved different from those companies thus the facts of those companies are not applicable in the insta nt case. Also as held by the various courts including the Apex Court tha t the first preri quist for tak ing comparable is the similar FAR whic h in the insta nt case is cle arly visible from the above discussion a nd hence the compa nies which were found to be diss imilar in ac tiv ities/ functions are establishe d to be functionally similar. There fore , all the case laws cited by the as sessee counsel are distinguis hable on facts and not applicable to the fac ts of the instant c ase. The individua l case wise discussion is fo llowed belo w:-
(1) Terex equipment Pvt. Ltd. vs. DCIT 25( 1) (ITA No. 1882/Del/2017) ( page no. 8-42 of paper book of case law compila tion) and Terex India Pvt. Ltd. vs. DCIT 25(1) (ITA No. 4791/del/ 2015) ( page no. 367- 402 of paper book of case law compila tion) Delhi ITAT. The functional profile o f the M/s Terex equipment Pv t. LTd. for A.Y . 2009-10 i s mentioned as para 17 (page
17) o f the ITAT order and of page 24 paper book of c ase laws completion. As pe r the Hon'ble ITA T order, Tere x India Pvt. Ltd. is engaged in manufacture , marke ting and servic ing of construc tio n earth mov ing and allie d e quipments. Also for A.Y . 2010-11, Tere x India Pvt. Ltd. vs. DCIT 25(1) (ITA No. 4791/ del/2015) it is mentioned at para 2 page 369 of the case laws compilation, that the company is engaged in the manufacture of mate rial processing equipment like cr ushers, screeners etc and it is als o into providing sales and post sales business suppo rt and engineering design services to its AEs. Thus in those cases, the assess ee is bas ically providing s ales and post sales business support se rvices to its AES whereas in the i nstant case , the facts are totally different as M/s 24 ITA No. 1137/Del/2015 Standard & Poor's South Asia Services Pvt. Ltd SPSA is engage d in providing high and tec hnical services by employing ve ry highly educated/te chnical profe ssionals . Also the suppo rt ser vices like in sales and post sales ac tivities cannot be compared with the services reinde red by the assess ee company in the fields of data collection. analytics, research and contribution of business articles etc. o f which involved ver y high and technical competency and research activities. In fact in para 18 in the order for A.y . 2010-11 for Terex India Pvt. Ltd, it is mentione d by the Hon'ble ITAT that M/s Terex India is a captive entity which is engaged in providing engineer ing de sign services and its AEs aga ins t high end a nd full fledged engineer ing and technical se rvices pro vided by EIL. Also with regard to M/s Rites Ltd. and Kitco Ltd., it is mentioned by the Hon'ble ITAT that both are the functional dissimilar as bo th a re multi functional, multi disciplinary o rganization (para 35-
36) howeve r in the instant case the functio nal pro fi le of the assessee company is similar to M/s EIL/ M/s Rites L td/Kitco Ltd. with regar d to provisio n o f consultancy se rv ices and thus cannot be exclude d.
With regard to Mahindra Consulting Enginee ring Ltd. one of the ground taken by the assessee company in the present case is that the compa ny reco gnized revenue on percentage completion method. This ar gument o f the assessee com pany was rejected by the Ho n'ble ITAT itself in the case of Tere x India Pvt. Ltd. vs . DC IT 25( 1) (ITA No. 4791/de l/2015) (pa ge no. 367- 402 of pape r bo ok of case law compila tion) Delhi ITAT for A.Y. 2010-11 in para 33 of its orde r. Also the Mahindra Consulting Engineering Ltd was rejec ted on the ground that it is providing high cons ultancy where as the M/s Terex was providing lo w and engineering design services. As it has already been mentione d above that the assessee company is providing high end technic al co nsultancy a nd research functio n accordingly its reason for exc lusion of Mahindra Consulting Engineering Ltd does not work in the assese ee case .
25 ITA No. 1137/Del/2015Standard & Poor's South Asia Services Pvt. Ltd Similar a rgument also hold true in the case of TCE Co nsulting Engineering Ltd which was also found to be engaged in high and engineering cons ulta ncy by the Ho n'ble ITAT vis a vis Tere x India Ltd. Pa ge 11. M/s IBI was exclude d because it was found to have incurre d expenditure of more than 5% on R& D activities and aga in engaged in pro viding high a nd services. As the as sesse e company is also involved in providing ve ry co mplex, high end technical and research oriented functio ns for its AES accordingly the bas is of which this compa ny is e xcluded in compar ison to M/s Terex India Ltd. does not ho ld good in the insta nt case and the same may be included in view of the functio nal similarity.
2. Furthe r, the assessee company has also relie d o n the order of M/ Phi llip Morris Ser vices India L td vs. ACIT in ITA 1408/ Del/ 2015 (I TAT, Delhi) and CIT vs. Phillip Morris India Ltd. (ITA No . 1468/Del/2018) Delhi High Court for exclusion the certain comparables . It is most humbly submitted, the company in that case ie. Phillip Morris SA was primar ily in import and distribution o f Marlbo ro Brand o f Cigare ttes in India. Further the company i.e. Phi llip Morris SA has also pro vided the marketing support se rvice to its AE in that segment only (as mentio ned in para 3 of the Hon' ble ITAT order a t page 1 of case la w compilation). From the functional profile mentioned, it is abso lutely clear tha t the comparables like M.s Apitco Ltd, Proc urement Co nsultancy Itd., M/s TSR Darashaw Itd. and M/s Quippo v alue rs were directed Global to be exclude d beca use of the func tio nal dissimilarity w ith M/s Phillip Morr is Services India Ltd. SA. I t is humbly submitted that the functions of the assessee company of prov iding high end consultancy, data analytics, tec hnical consultancy and research oriented activities cannot be compare d to the ac tivities of M /s Phillip Morris of pro viding services in import and distribution of cigare tte by any stretch of imaginatio n. All the comparables in that ca se are excluded because o f the functional diss imilarities with M/s Phillip Morris and as the functions of the 26 ITA No. 1137/Del/2015 Standard & Poor's South Asia Services Pvt. Ltd assessee company are quite similar to the comparable s, acco rdingly there is no reason what so ever for exclusion o f these comparables in the instant case and hence reliance on Phillip Morris case is o f no help to the a ssess ee company.
Similar fac ts are there fo r the o ther case laws cited by the assessee company and in all these cases the Hon'ble Courts/ Tribunals have found those companies to be exclude d which are func tionally diss imilar to the company in question in res pective c ases and as it has been proved beyond doubt by the above discuss ions that the comparables companies se lected by the TPO/A O and duly confirmed by the DRP, these comparables are similar to the ass essee company with rega rd to their FAR .
It is also no t out of place to mention tha t the company in which the assessee has selected the compara ble for bo th the rating services and marke t s uppo rt services were completely functionally dissimilar to the assessee co mpany a nd if we take those companies into no tice then the comparables selected the department are very simila r in FAR to the assessee company and should be retained as comparables . Al so as in the instant case TNMM has been the MAM accordingly the br oad similarity of functions are required and from the abo ve discussion and from the facts of the TPO/AO/DRP orders it is quite ev ide nt that the compar able s and the assesse e company a re func tio nally s imilar.
In view o f the abo ve, it is humble submitte d that all the above no ted companies are functionally similar to the assessee company and they are fully comparable with re gard to FAR for de termination o f the ALP of Rating Suppo rt Services and business suppo rt se rvices and the assessee's appeal may kindly be dismissed.
It is humbly prayed that the a bove writte n submissio ns may kindly be taken on record. Fur ther it is submitted that, in line w ith 27 ITA No. 1137/Del/2015 Standard & Poor's South Asia Services Pvt. Ltd direc tio ns of the Hon'ble Bench, the copy of the above written submiss ion has also been supplie d to the assessee's counsel on e- mail. The above submission has also been emailed to the Ho n'ble ITAT email id i .e . [email protected]."
Rating Support Services Segment (RSSS):
11. The MAM was TNMM. The assessee has choosen four comparables which resulted in OP/TC of the comparable companies at 12.71% against the OP/TC by the assessee of 15.12%. The TPO accepted two comparables c hoosen by the assessee and added 15 new comparables totaling to 17 comparables which resulted in OP/TC at 24.80% . The ld. DRP affirmed the action of the TPO. Hence, the assess ee is in appeal challenging the inclusion of 9 co mparable s which are as under:
1. Globa l Procurements Consult. Ltd.
2. Engineers India Ltd.
3. RITES Ltd.
4. Kitco Ltd.
5. IBI C hematur (Engineering & Consultancy) Ltd.
6. Mahindra Consulting & Engg. Services Ltd.
7. TCE Consulting Engineers Ltd.
8. TSR Darashaw Ltd.
9. Quippo Valuers and Auctioneers Ltd.
12. The ld. AR, at the outse t argued that the comparables choo sen by the TPO as co nfirmed by the ld. DRP are "Functionally Dissimilar". The ld. AR strongly relied on the judgment of Hon'ble Delhi High Court in the case of C IT vs. 28 ITA No. 1137/Del/2015 Standard & Poor's South Asia Services Pvt. Ltd Philip Morris Services India SA in ITA No. 1468/2018 AY 2009-
10.
Name of the R e a s o ns for c h a l l e ng i ng R e a s o ns c a n va s s e d for c o m p ar a b l e i nc l u s i o n i nc l u si o n
1.Engineer's 1 . T he c o m p a ni e s a r e e ng a g e d 1. In the case of BG India Ltd. in high e nd and f u l l - fl e d g e d Ex p l o r a t i o n & P r o d uc t i o n I nd i a E ng i n e e r i n g and related Ltd, Vs. JCIT, I nte rnational technical services. T a x a t i o n, D e h r a d u n i n I T A N o .
2 . I t ' s a G o vt . U nd e r t a k i ng a nd 1170/Del/2015, and ITA No.
mostly m a n ag i ng contracts 1581/Del/2015, the Ho n ' b l e
provided by Govt. ITAT has he l d t h at t he
3. S i g ni f i c a n t R & D G o v e r n m e n t c o m p a ni e s s ho ul d
e xp e nd i t u r e . no t be rejected as t he
4 . O n t he p e r us al o f i t s A n n u a l c o m p ar a b l e o n l y b e c a u s e t h e y
R e p o r t fo r F Y 2 0 0 9 - 1 0 s ug g e s t s a r e G o v e r n m e n t c o m p a ni e s .
t ha t as per AS-17, EI L has 2. The R&D e xp e n d i t u r e is
d i v i d e d i t s f i na nc i al s t a t e m e n t s 0.53%.
i nt o two s e g m e nt s na m e l y
' C o n s ul t a nc y and e n g i ne e r i ng
p r o j e c t s ' a nd ' L u m p s u m t ur nk e y
p r o j e c t s ' . T h e va r i o u s a c t i v i t i e s
carried o ut by EI L in
' e n g i n e e r i ng s e r v i ce s division'
i nc l u d e fe a s i b i l i t y studies,
project m a n ag e m e n t , p l a nni ng
a nd s c h e d ul i n g , cost
e ng i n e e r i n g , process a nd
equipment d e s i g n, detailed
e ng i n e e r i n g , p r o c u r e m e nt a nd
c o ns t r u c t i o n m a na g e m e n t ,
materials and m a i n t e na n c e
servi ces However, the Appellant
i s n o t e ng ag e d i n a n y fo r m o f
c o ns ul t a n c y or c o ns t r u c t i o n
activities carried o ut by EIL
fo r m i n g a p a r t o f t he p u r p o r t e d
c o m p ar a b l e s e g m e nt ( s e l e ct e d
29 ITA No. 1137/Del/2015
Standard & Poor's South Asia Services Pvt. Ltd by TPO). (Annual Report PB Pg.
237) 5 . S i g ni fi c a n t R & D
2. Rites 1. M ul t i disciplinary 1. In the case of BG limited o r g a ni z a t i o n in t he fi e l d of Ex p l o r a t i o n & P r o d uc t i o n I nd i a transportation, infrastructure Ltd, Vs. JCIT, I nte rnational e t c . a n d r e n d e r s v a s t r a ng e o f T a x a t i o n, D e h r a d u n i n I T A N o .
e ng i n e e r i n g c o n s ul t a nc y 1170/Del/2015, and ITA No.
servi ces. 1581/Del/2015, the Ho n ' b l e
2 . I t ' s a G o vt . U nd e r t a k i ng a nd ITAT has he l d t h at t he
mostly m a n ag i ng contracts G o v e r n m e n t c o m p a ni e s s ho ul d
provided by Govt. no t be rejected as t he
3 . R i t e s r e n d e r s a va s t r a n g e o f c o m p ar a b l e o n l y b e c a u s e t h e y
e ng i n e e r i n g c o n s ul t a nc y a r e G o v e r n m e n t c o m p a ni e s .
servi ces, which i nc l ud e s 2 . F un c t i o n a l l y s i m i l a r .
a r c h i t e c t ur e a nd p l an n i ng ,
b r i d g e a nd t u n ne l e n g i ne e r i ng ,
c o ns t r u c t i o n project
management, electrical
e ng i n e e r i n g , e n v i r o nm e nt a l
e ng i n e e r i n g , u r b a n e n g i ne e r i ng ,
e xp o - t e c h , fi n a nc i a l
management, i nd us t r i a l
e ng i n e e r i n g , marine
e ng i n e e r i n g .
3. Kitco 1. Premier e n g i ne e r i ng , In the case of BG Exploration
Limited management in project & P r o d u ct i o n I nd i a Ltd, Vs .
c o ns ul t a n c y fi r m . JCIT, I nt e r na t i o na l T a xa t i o n,
2. It's a 100% Govt. D e hr a d u n in ITA No.
U n d e r t a k i ng and m o st l y 1170/Del/2015, and ITA No.
managing contracts provided by 1581/Del/2015, the Ho n b ' l e
Govt. ITAT has he l d t h at t he
3. Kitco is e ng a g e d into G o v e r n m e n t c o m p a ni e s s ho ul d
s i g ni fi c a nt e n g i ne e r i n g p r o j e c t s no t be rejected as t he
i n t h e n a t ur e o f a s s e t v a l u a t i o n , c o m p ar a b l e o n l y b e c a u s e t h e y
HR D programmes, industrial, a r e G o v e r n m e n t c o m p a ni e s .
i nf r a s t r uc t u r e a nd t o ur i s m
projects.
30 ITA No. 1137/Del/2015
Standard & Poor's South Asia Services Pvt. Ltd
4. At p r e s e nt Kitco e a r ns r e v e n ue fr o m fo u r major divisions' viz. m an a g e m e nt c o ns ul t a n c y , detailed e ng i n e e r i n g , t e c hn i c a l s e r vi c e s a nd p r o j e c t c o n s u l t a n c y .
4. Global 1 . I t i s i n p r o c ur e m e n t a d v i so r y The assessee has opposed this procurement servi ces an d no t p r o v i d i ng c o m p a ny o n t he g r o u nd t h a t i t c o ns ul t a nt s up p o r t s e r vi c e s is engaged in p r o vi d i ng limited 2. P r o v i d i ng c o n s ul t a nc y procurement advisory services servi ces. a nd also r e c e i ve d some
3. The b us i n e s s d e s c r i p t i o n o f i nc o m e fr o m commission. t he c o m p a n y i s t he c o m p a n y i s Ho w e v e r , t he p r o fi l e of the primarily i nt o review of a s s e ss e e company shows procurement activities fo r the s up p o r t s e r vi c e s are almost t w o l ar g e b a nk f i n a n c e d p r o j e c t s similar to this company, as in I nd o n e s i a i.e. P r o c u r e m e nt m e nt i o n e d in t he TPSR Advisory Se r vi c e s . Thus, it is a s s e ss e e company is e ng a g e d in not p r o v i d i ng any responsible fo r assisting in s up p o r t s e r v i c e s i n fa c t p r o v i d e s procuring various goods and c o ns ul t a n c y S e r v i c e s . s e r vi ce s fr o m i nd e p e nd e nt m a n u fa c t u r e r / se r vi c e p r o v i d e r i n I nd i a fo r i t s A E s i t al s o a c t s a s a l i a s o n b e t w e e n AE S a n d t he i nd e p e nd e n t p a r t i e s. In fa c t the assessee co m p a n y appears to be acting as global p r o c u r e m e n t h u b / a g e nc i e s fo r t he entire S&P g r o up . T h us f un c t i o n a l l y both t he c o m p a ni e s are quite similar.
The m ai n functions of the
c o m p a ny are p r e p a r i ng and
revie wing t e c h ni c a l
s p e c i fi c a t i o ns , estimation of
costs, se l e ct i o n of vendors,
i ns p e ct i o n and e x p e d i t i ng ,
quality control and time
management. The Ld.
31 ITA No. 1137/Del/2015
Standard & Poor's South Asia Services Pvt. Ltd a ut h o r i z e d r e p r e s e n t a t i v e h a s c o nt e s t e d that t hi s Company is engaged in b u s i ne s s of s hi p p i ng logistics, p a y m e nt a nd acco unting, k no w - h o w t r a n s fe r ( t r a i ni n g ) a nd bid s up p o r t s e r vi ce s w h i c h a r e n o t similar to s e r vi c e s provided by t he Assessee. It also renders financial ad vi s o r y s e r vi ce s . It was f ur t he r c o nt e s t e d t ha t it has abnormal and volatile m a r g i ns . An interesting r e a s o n w a s a l s o g i v e n t h at t he c o m p a ny is a g o v e r n m e nt c o m p a ny a nd m o r e t ha n 2 5 % s ub s c r i b e d c a p i t a l i s h e l d b y o n e o f t h e b a n k s . R e l i a n ce i n t hi s r e g ar d is made to t he recent decision of Mumbai B e nc h o f T r i b u na l i n t he c a se of Shell I nd i a Markets Pvt.
Ltd. vs. ACIT (ITA No. 1 9 3 / M um / 2 0 1 3 ) . w he r e i n , t he Ho n ' b l e Tribunal d i r e ct e d to e xc l u d e company owned by Government of I nd i a as a va l i d co m p ar a b l e to the t a xp a y e r . T he Assessee ha s s ub m i t t e d t he balance sheet of t he c o m p a ny w hi c h is placed at page No. 29 to 73 of t he p a p e r b o o k . A c c o r d i ng t o t he r e v e n ue model of t he c o m p a ny , it is p r o vi d i ng s e r vi ce s of procurement advisory services and back- o f fi c e s up p o r t t o t he r e g i o n a l 32 ITA No. 1137/Del/2015
Standard & Poor's South Asia Services Pvt. Ltd procurement o f fi c e r s of t he World Bank r e vi e w i n g t he i r t e ch n i c a l s p e c i fi c a t i o n o f t he g o o d s p l a n ne d t o b e p r o c u r e d .
The major e a r ni n g of the
c o m p a ny i s fr o m c o n s u l t a n c y
s e r vi ce s i n t he s e ar e a s o n l y .
On p e r u s i ng t he f u nc t i o n a l
p r o fi l e of this comparable
c o m p a ny . W e a r e o f t h e vi e w
t ha t f u nc t i o ns performed by
t hi s c o m p a r a b l e c o m p an y a r e
c o m p ar a b l e w i t h t h e f u n ct i o n s
p e r fo r m e d by t he Assessee.
He nc e , we r e j e ct t he
a r g u m e nt of the Ld.
A ut h o r i ze d R e p r e s e nt at i ve of
t he fu n ct i o na l d i s s i m i l a r i t y o f
t hi s c o m p a r a b l e . F ur t he r m o r e ,
r e g a r d i n g t he a r g u m e nt o f t he
A s s e ss e e t ha t it is a
g o ve r nm e n t company,
t he r e fo r e it s ho ul d be
e xc l u d e d as a comparable.
D e c i s i o n o f C o o r d i na t e b e n c h
c i t e d b e fo r e u s i n S h e l l I nd i a
Markets Pvt. Ltd. vs. ACIT
(ITA No. 1 9 3 / Mu m / 2 0 1 3 ) is
c o ns i d e r e d where the
g o ve r nm e n t companies are
e xc l u d e d a s a c o m p a r a b l e no t
fo r t he r e a s o ns o n l y t h a t t h e y
are government owned
c o m p a ni e s b ut because of
t he i r fu n c t i o n a l d i ss i m i l a r i t y .
W e r e j e c t t he a r g u m e nt o f t he
Ld. A ut h o r i s e d
R e p r e se nt a t i v e . F i r s t l y f o r t h e
reason that it is not a
33 ITA No. 1137/Del/2015
Standard & Poor's South Asia Services Pvt. Ltd g o ve r nm e n t c o m p a n y a s o n l y t he s p e c i fi e d percentage of t he s ha r e ho l d i n g is held by EX I M b a n k a n d t h e r e fo r e o nl y t he p r o vi s i o ns w i t h r e sp e c t t o t he a p p o i n t m e nt of t he a ud i t o r s are regulated and s e c o n d l y i t d o e s n o t ha v e a n y i m p a c t o n t h e b u s i ne s s m o d e l o f t h e c o m p a ny . I n an y w a y t he g o ve r nm e n t c o m p a ni e s , w hi c h a r e m o st l y p u b l i c s e c t o r u nd e r t a k i n g s also operate with s i m i l ar fu n c t i o n s , risks a nd assets e m p l o ye d , t he r e fo r e it c a nn o t be said t ha t merely a company is a g o ve r nm e n t c o m p a ny ; it s ho ul d be exclude d fr o m c o m p ar a b i l i t y analysis. Many times Government companies are better b us i n e s s p r o p o si t i o ns / models then private entrepreneurs, and are good comparables and s u c h i ns t a n c e s o f g o v e r n m e nt c o m p a ni e s are i n nu m e r a b l e .
In view of t hi s we are in
a g r e e m e nt with t he
o b se r v a t i o n of t he Ld.
T r a ns f e r Pr i c i n g O f fi c e r as
well as t he Ld. Dispute
R e s o l ut i o n Panel t ha t this
c o m p ar a b l e is a good
c o m p ar a b l e for t he
c o m p ar a b i l i t y a na l y s i s i n t he
case of the company.
34 ITA No. 1137/Del/2015
Standard & Poor's South Asia Services Pvt. Ltd
5. IBI 1. It is in the sector of The assessee has alleged that C h e m a t ur e p r o v i d i ng hi g h e nd e n g i ne e r i ng most t he s e companies are Limited c o ns ul t a n c y and other e ng a g e d i n hi g h e n d t e c h ni c a l e ng i n e e r i n g s e r v i c e s c o ns ul t a n c y s e r vi c e s a nd t h e y
2. E m p l o ye e s hi g hl y trained are functionally d i s si m i l a r .
technical staff 3. Si g ni f i c a n t Ho w e v e r , t he a s s e s s e e i s a l so
R & D e xp e nd i t ur e e ng a g e d i n hi g h e n d t e c h ni c a l
c o ns ul t a n c y s e r vi c e s and is
f un c t i o n a l l y similar as t he
a s s e ss e e e m p l o y e e s c o ns i st i n g
of data a n al y s t s , e c o n o m i s t s
a nd so ft w a r e e n g i n e e r s .
6. M a hi nd r a 1. Engaged in provision of T he assessee has taken t he
c o ns ul t i ng i nf r a s t r uc t u r e c o n s ul t i ng g r o u nd t ha t t h e s e c o m p a n i e s
E ng i n e e r s servi ces r e c o g ni s e s their revenue on
Ltd. 2 . I t r e c o g n i s e s i t s r e ve n ue o n p e r ce nt a g e co mpletion
p e r c e nt a g e c o m p l e t i o n m e t h o d m e t ho d . T hi s a r g u m e nt o f t he
3. A b s e nc e of se g m e nt a l a s s e ss e e company for
i nf o r m a t i o n. M a hi n d r a c o n s ul t i ng E ng i ne e r s
4 . T he c o m p a n y i s e ng a g e d i n Ltd was reje cted by the
provision of Infrastructure Ho n ' b l e I T A T i t s e l f i n t h e c a s e
c o ns ul t i ng s e r vi c e s i n t h e ar e a s of Terex I nd i a P vt . Ltd. vs.
of Special Ec o n o m i c Zones, DCIT 25(1) (ITA No.
water supply and s e w e r ag e , 4791/del/2015) (page no .
s o l i d w a s t e m a n ag e m e nt , u r b a n 3 6 7 - 4 0 2 o f p ap e r b o o k o f c a s e
i nf r a s t r uc t u r e , agro law compilation) De l h i ITAT
i nf r a s t r uc t u r e , social fo r A . Y . 2 0 1 0 - 1 1 i n p a r a 3 3 o f
i nf r a s t r uc t u r e , p o r t a n d ha r b o r its order.
a nd o f fs ho r e t e r m i na l a nd
i nd us t r i al i n fr a st r uc t u r e etc.
This c o m p an y also worked on
i n no v at i v e projects like c e nt r e
of excellence of h o r t i c ul t ur e ,
dedicated offshore terminal for
coal h a n d l i ng . The abo ve
description of t he c o n s ul t a nc y
servi ces r e nd e r e d by this
c o m p a ny d i v u l g e s t h a t t h e s a m e
a r e q ui t e d i v e r s e i n na t ur e a n d
35 ITA No. 1137/Del/2015
Standard & Poor's South Asia Services Pvt. Ltd no t c o m p a r a b l e w i t h t h e n a t u r e o f c o n s ul t a n c y p r o v i d e d b y t he A p p e l l a n t ( A n n ua l R e p o r t P g . 3 3 5 a nd 3 5 3 ) .
7. TCE 1 . E ng a g e d i n p r o vi s i o n o f hi g h TCE C o n s ul t i ng E n g i ne e r i n g C o n s u l t i ng e nd e ng i ne e r i n g c o n s ul t i ng L t d w hi ch w a s a l s o f o u nd t o E ng i n e e r s s e r v i c e s a nd p r o j e c t e n g i ne e r i ng be engaged in hi g h and Ltd. 2 . I t r e c o g n i s e s i t s r e ve n ue o n e ng i n e e r i n g consultancy by p e r c e nt a g e c o m p l e t i o n m e t h o d t he Hon'ble ITAT vis a vis
3. A b s e nc e of se g m e nt a l Terex I nd i a Ltd. As t he i nf o r m a t i o n. a s s e ss e e company is also
4. I T AT D e l hi in the ca s e of i nv o l v e d in p r o v i d i ng very Terex India Pv t . Ltd. b e a r i ng complex, high e nd t e c h ni c a l I T A no . 4 7 9 1 / D e l / 2 0 1 5 ( Pa r a 4 4 a nd re search oriented P g 3 8 7 o f c a s e l a w c o m p i l a t i o n) , f un c t i o n s for its AE accepted the appellant accordingl y it is a right c o nt e n t i o n fo r e x c l u s i o n o f T C E c o m p ar a b l e .
C o n s u l t i ng Engineers Ltd as
c o m p ar a b l e o n t h e b a s i s o f n o n -
a va i l a b i l i t y se g m e nt a l
i nf o r m a t i o n.
8. TSR 1 . E n g a g e d i n p r o v i s i o n o f s ha r e From the d i r e ct o r s report
Darashaw r e g i s t r y, fund management in placed at page 106 & 107 of
Ltd. p a y r o l l p r o c e s s i ng s e r vi c e s . t he paper book of t he
2. LD. CIT(DR) has failed to c o m p ar a b l e c o m p a ni e s it is
establish how the above s e e n t h a t t he c o m p a n y m a j o r
m e nt i o n e d company a nd i nc o m e is only fr o m t he
asse ssee are similar. s e r vi ce s L e . 2 0 c r o r e s o ut o f
21 crores is t he as s e s s e e
i nc o m e fr o m s e r vi c e c h ar g e .
A l s o t hi s c o m p a n y i s p r o vi d i ng
s o ft w ar e services to various
c l i e n t s / b u s i ne s s e s i n t h e fi e l d
o f r e c o r d s m a na g e m e nt . s h a r e
r e g i s t r y a nd t r a n sf e r s e r v i c e s ,
depository s e r v i ce s fund
management, pay role
s e r vi ce s e t c . T h u s f un c t i o na l l y
36 ITA No. 1137/Del/2015
Standard & Poor's South Asia Services Pvt. Ltd both the assesee company as w e l l a s T S R D a r a s ha w L t d . a r e working in t he support s e r vi ce s s e ct o r o nl y a nd m o r e o r l e s s f un c t i o n a l s i m i l a r . T he a s s e ss e has al s o taken t he g r o u nd t hi s company is e a r n i ng s up e r normal p r o fi t s ho w e v e r a s m e n t i o n e d ab o ve no w it is a settled legal p o si t i o n t h at companies c a nn o t be included or e xc l u d e d b a s e d o n t h e i r p r o f i t m a r g i ns .
9. Quippo 1. E ng a g e d in sale of T hi s c o m p a ny also is V a l ue r s a nd c o ns t r u c t i o n and earth m o v i ng f un c t i o n a l l y similar (as A u ct i o n e e r s equipments m e nt i o n e d in page 82 & Pvt. Ltd. 2. E ng a g e d in providing as s e t 83/directors report of paper management. book of comparables 3 . T he c o m p a n y i s e ng a g e d i n c o m p a ni e s ) to the as s e s s e e provision of Infrastructure c o m p a ny as it is p r o vi d i ng c o ns ul t i ng s e r vi c e s i n t h e ar e a s s e r vi ce s i n t h e f i e l d o f a s s e t of Special Ec o n o m i c Zones, management, disposal water supply and s e w e r ag e , s e r vi ce s through a uc t i o n , s o l i d w a s t e m a n ag e m e nt , u r b a n ne g o t i a t e d s a l e s e t c . F ur t he r i nf r a s t r uc t u r e , agro t hi s company is also in t he i nf r a s t r uc t u r e , social fi e l d of p r o vi d i n g v a l ua t i o n i nf r a s t r uc t u r e , p o r t a n d ha r b o r s e r vi ce s fo r i n d us t r i a l a s s e t s. a nd o f fs ho r e t e r m i na l a nd Thus the basic/ u nd e r l y i ng i nd us t r i al i n fr a st r uc t u r e etc. f un c t i o n s o f b o t h t h e as s e s s e e This c o m p an y also worked on c o m p a ny as well as t he i n no v at i v e projects like c e nt r e Q ui p p o V a l ue r s and of excellence of h o r t i c ul t ur e , A u ct i o n e e r s P v t . L t d . i s s a m e .
dedicated offshore terminal for
coal h a n d l i ng . The abo ve
description of t he c o n s ul t a nc y
servi ces r e nd e r e d by this
c o m p a ny d i v u l g e s t h a t t h e s a m e
37 ITA No. 1137/Del/2015
Standard & Poor's South Asia Services Pvt. Ltd a r e q ui t e d i v e r s e i n na t ur e a n d no t c o m p a r a b l e w i t h t h e n a t u r e o f c o n s ul t a n c y p r o v i d e d b y t he A p p e l l a n t ( A n n ua l R e p o r t P g . 3 3 5 a nd 3 5 3 ) .
13. The agreement with regard to compensation reads as under:
" Compensation
1. In recognitio n of the Service s to be performe d under this Agreement, SPI a grees to reimburse SPSA in the manner s tated in par agraph 3 be low for any expenses directly or indirectly incurred by SPSA in pe rfo rming the Services. The expenses shall include, but no t be limited to , sala ries and benefits of all emplo yees, business transpo rtatio n expenses, rent and maintenance o f offices, taxes, exclusive of taxes based on net inco me, and any other administrative expenses .
2. For and in consideration o f the Services to be pe rformed under this Agreement, SPI further agrees to pa y SPSA a co mmission in the manner state d in paragr aph 3 below of an additional 15% (fifteen percent) of the to tal of the direct and indirect expenses incurred by SPSA as describe d in pa ra graph 1 above . The re cipient of the services would a ls o be liable to pa y appropriate service tax on the said servie s apa rt from the commission mentioned he re inbe fore.
3. All amounts due to SPSA under this Agreement shall be payable i n United States Dollars on a monthly basis, w ithin 30 days of the end of each month.
4. S PI shall have the right through duly appo inted representatives to inspec t the books of SPSA at any time to verify the amounts payable under this Agreement."38 ITA No. 1137/Del/2015
Standard & Poor's South Asia Services Pvt. Ltd
14. The above agreement pro vides that the as sessee is only providing support services. All expenses incurred by the assessee in respect of support are reimbursed by the AES to the assessee. In addition to this assessee gets 15% over and above total of direct and indirect expenses. Thus, ther e is no cost to the assessee. Whatever is incurred by the assessee is fully reimbursed to the assessee w ith 15% margin thereof. With regar d to the argument made by the Ld. CIT(DR), the assessee is taking care of the entire marketing and deve lopment of its parent compa ny in India and South East Asia, it was submitted that the AE' s of the assessee formulate overall mar keting strategy and are responsible for marketing of the products/services offered by them. It is also specified tha t AE's function as the front end contracting e ntities w ith customers and undertake the lead generation, marketing and sales a ctivity for the end products provided to the customers and the AE is respo nsible fo r maintaining and developing the relationship with the end custo mers and therefore responsible for expanding the business.
15. The assessee undertakes mar keting and business deve lopment activities like identifying prospective customers in India and responsible for conceptualization of services and deter mination of the scope of work to be performed by its AEs. It gathers data and send data for the AE for analysis . The assessee also gives rating and providing c onsultancy in collection of data analysis, mar ket research, creditworthiness of financial products and institutions. In this background, having examined the functiona l profile of each comparable, we hold that the comparables namely, 39 ITA No. 1137/Del/2015 Standard & Poor's South Asia Services Pvt. Ltd Engineers India Ltd. and RITES owing to their functional profiles and fina ncials are considered as right comparables. The others comparables are hereby d irected to the excluded.
16. With regard to other support services, keeping in vie w the above analysis and after considering the functional profile of the Apitco as canvasse d by the ld. DR that M/s Apitco records substantial income from the services sector which include proje ct related services, tourism and research studies, asset reconstruction and management ser vices, e nergy related services etc. a nd M/s Apitco is mainly in the service sector and as the assessee company is also providing service s to its AEs in the fields of I .T. intellectual inputs in the form of contributing articles, marketing services, procurement services etc., thus there is func tional similarity in assessee company and M/s Apitco, which was opposed by the ld. AR arguing that Apitco Limited company is providing services in the nature of Project report prepar ation, Technical and econo mic studies, Feas ibility studies, Micro enterprise development, Skill development, Proje ct management co nsulting, Industrial cluster development, Environmental management consulting, Energy management consulting, Market and social research and Asset reconstr uction management services. All other services are entirely different and also no segment-w ise profitability data of these services is available, we hold that it cannot be considered as a right comparable. With regard to Global Procure ment Consultancy Ltd., TSR Darashaw Ltd., Quippo Valuers Ltd. the y have already been rejected in the Rating Support Services and hence the same ratio applies to o ther support services.
40 ITA No. 1137/Del/2015Standard & Poor's South Asia Services Pvt. Ltd Disallowance u/s 40 (a) (ia):
Prior period expenses
17. During the year under consideration, the assessee has accounted for legal and profe ssional expenses pertaining to earlier years amounting Rs. 34 ,07,882/- in A.Y. 2010-11. The assessee has stated before AO that the assessee has duly deducted and deposited tax on these expenses at the time of receipt of invo ices and payment thereof. The AO has denied the deduction for claim of expenses of Rs. 34.07,882/- under section 40(a) (ia) of the Act by treating the same as prior perio d expenses. DRP upheld the action of AO. In this regard, it was submitted that the assessee has not claime d deduction of Rs. 34,07,882/- pertaining to legal and pr ofessional fee expe nses in any of the previous years to which such expenses pertains to these expenses are allowable as tax deductible expe nditure a s per the provision of section 37 of the Act. However, deduction of such expenditure would als o be governed by the provisions of section 40(a)(ia) and the Appellant has duly deducted and deposited TDS On expenditure during the subje ct year, such expenses are eligible for tax deduction during the subject year. The ld. DR argued that the expenses should be considered only in the year incurring and cannot be allowed to fall in the subsequent year. Having go ne through the entire factum, we hold that no disallowance is called for on this amount which was hitherto to unclaimed in any o f the previous years. The appeal of the assessee on this ground is allowed.
41 ITA No. 1137/Del/2015Standard & Poor's South Asia Services Pvt. Ltd
18. In the re sult, the appeal of the assessee is partly allowed. Order Pronounced in the Open Court on 30/08/202 3.
Sd/- Sd/-
(Yogesh Kumar US) (Dr. B. R. R. Kumar)
Judicial Member Accountant Member
Dated: 30/08/2023
*Subodh Kumar, Sr. PS*
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT(Appeals)
5. DR: ITAT
ASSISTANT REGISTRAR